An Anaheim hospice company was billing Medicare for patients who weren't dying. The non-death discharge rate was 85 percent. The national average is 17. Cash was delivered in envelopes directly to beneficiaries to keep them enrolled. The scheme — called "Operation Never Say Die" — ultimately cost taxpayers $50 million.
That was one operation. In one state. And it ran for years before anyone stopped it.
On Tuesday, HHS Secretary Robert F. Kennedy Jr. announced the federal government is freezing more than $1 billion in Medicaid payments to California and Minnesota while investigators review whether the money was legitimately spent. California's tab: $867.5 million. Minnesota's: $199 million. The funds are deferred, not canceled — but they won't move until both states can document where the money went.
"We are not sending Medicaid dollars out the door until we have confidence that they are being spent lawfully and appropriately," Kennedy said.
He put the blame for how bad things had gotten squarely on the Biden administration. "Instead of protecting your money, they open the floodgates to theft," Kennedy said. "They dismantle basic program integrity and oversight." He reserved specific criticism for Biden's HHS Secretary Xavier Becerra, saying Becerra "looked the other way while fraud, waste, and abuse exploded." The result: "The scammers got paid. The taxpayers got stuck with these enormous bills."
In California, CMS flagged $221 million in claims tied to individuals with what CMS Administrator Dr. Mehmet Oz described as "unsatisfactory immigration status." In plain terms: people in the country illegally or without verified legal status, billing a program funded by American taxpayers. Federal investigators also found millions of dollars in claims for services allegedly provided to beneficiaries who were already dead. California's in-home care spending grew 24 percent over the past two federal fiscal years — twice the national average of 12 percent.
Oz didn't mince words: "So California increased spending at twice the rate of the average of the rest of the entire nation. That doesn't make sense."
In Minnesota, investigators flagged 14 high-risk service areas where billing patterns raised red flags. This isn't the first time. In February, CMS paused $259 million in Minnesota Medicaid payments over similar concerns. A U.S. attorney has estimated total Medicaid fraud in the state could reach $1 billion.
Oz described the administration's new approach plainly: "CMS is done trying to chase down stolen and misused funds after they've already left the building." To find the fraud, federal officials used AI, advanced analytics, and other detection tools — a deliberate shift away from the Biden-era approach of releasing funds first and reviewing never.
Governor Tim Walz called the freeze "political retribution," arguing it punishes vulnerable populations rather than actual fraudsters. His office added that "the Trump Administration is cutting more money in healthcare than they've prosecuted for fraud."
That line lands differently when your state is sitting on a $1 billion fraud estimate and investigators just found billing records submitted for dead people.
Newsom called the announcement a "recycled political stunt," claiming California is being targeted for political reasons. Federal investigators are holding $221 million in claims tied to people in the country illegally and millions more billed for beneficiaries who weren't alive to receive the services. That's not a political stunt. That's an audit.
The pattern isn't complicated. Federal dollars flowed to states with minimal verification. The states built massive programs on that money. When someone finally asked to see the receipts, the response was outrage — not documentation.
Last month, acting Attorney General Todd Blanche announced 455 people had been charged for $6.5 billion in healthcare fraud schemes — what federal officials called the "greatest combined federal and state effort in combating health care fraud in history." Kennedy's Medicaid freeze is the same strategy applied upstream: stop the money before it walks out the door, not after.
A billion dollars is a lot of money to freeze. It's also a lot of money to lose track of.
Only one of those things seems to bother Sacramento and St. Paul.